TABLE OF CONTENTS
I.
INTRODUCTION--BACKGROUND
II.
OVERVIEW
III.
Page
4
B.
PROGRAMS/SERVICES OFFERED
Page
5
THE FOREIGN CREDIT INSURANCE AGENCY
A.
BACKGROUND--PURPOSE
Page 11
B.
PROGRM~S/SERVICES
Page 12
OFFERED
THE OVERSEAS PRIVATE INVESTMENT CORPORATION
A.
BACKGROUND--PURPOSE
Page 17
B.
PROGRAMS/SERVICES OFFERED
Page 19
THE INTERNATIONAL MONETARY FUND
A.
BACKGROUND--PURPOSE
Page 24
B.
PROGRM~S/SERVICES
Page 25
C.
FUTURE OF THE INTERNATIONAL MONETARY FUND
OFFERED
A.
BACKGROUND--PURPOSE
Page 28
B.
PROGRAMS/SERVICES OFFERED
Page 29
VIII.
XII.
Page 26
THE DOMESTIC INTERNATIONAL SALES CORPORATION
C. THE FUTURE OF THE
DOMESTIC INTERNATIONAL SALES CORPORATION
XI.
3
BACKGROUND--PURPOSE
VII.
X.
Page
A.
VI.
IX.
1
THE EXPORT-IMPORT BANK
OF THE UNITED STATES
IV.
V.
Page
PROCEDURES FOR APPLYING FOR
EXPORT FINANCING PROGRAMS
Page 30
Page 32
CONDITIONS AFFECTING U.S. EXPORTS
A.
DOMESTIC ATTITUDES
Page 36
B.
EXPORT DISINCENTIVES
page
SUMMARY
FOOTNOTES
BIBLIOGRAPHY
37
Page 40
Page 42
Page 44
I.
INTRODUCTION--BACKGROUND
It was early Monday morning when John Dough, the chief
financial officer of Diversified Products, Inc., received the
memo.
It was from Mr. Bigg, the president and chief executive
officer of the company, and it urgently requested a meeting
with Dough as soon as possible.
Dough walked towards Mr. Bigg's office suite with some apprehension.
He knew that Bigg had been unhappy with the company's
first quarter report, and rumors of top management reorganization
had already begun circulating throughout the firm.
When Dough
entered Bigg's office, however, his fear of being reprimanded
or removed disappeared.
-.
The older man had a sparkle in his
eyes, and Dough knew that this meant that another "Bigg idea"
was in the making.
"Please come in, John," Bigg said.
"I hope you are going
to be as excited about what I have to say as I am.
Since our
last meeting, I have been looking into some potential markets.
As you know, Diversified is an established company in our present
fields, but we are faced with maturing markets for several of
our products.
I am confident that we will be able to continue
production of these products for several more profitable years,
but it is time to consider expanding these products into larger,
growing markets."
What Bigg said made sense to Dough.
It was only logical to
expand their market potential, but he did not know how the company
was going to achieve this.
Diversified had virtually exhausted
its market potential in the entire country.
-2-
-
"I can tell by your expression that you question my suggestion," Bigg continued.
"Well, let me finish what I have to
say before you pass jUdgement.
I believe that our company has
a large, untapped market for many of our products in countries
outside of the United States.
For this reason, I am asking
my top men to completely research this possibility.
I want to
know everything there is on the subject of exporting and international business."
Dough could not help but be impressed by Bigg's suggestion.
Expanding into international markets could add hundreds of
thousands of dollars to their revenues.
"Now. John, I have an important assignment for you.
I
want you to find any information you can on export financing
programs for U.S. companies.
I want to know who offers these
programs. what types of programs there are, and I want to know
how we can apply for these programs.
Find out conditions in
this country that affect exporting.
And, most importantly. I
want to know this information as soon as possible.
The next
Board meeting is a week from Friday, and I want to submit a
proposal to them at that time.
I do have the telephone number
of the International Trade rivision of the Chamber of Commerce
to give you as a start on this assignment.
I wish you luck."
Dough started on this assignment on Monday afternoon.
The
following is his report. which he submitted to Bigg in time for
the Board of Directors' next meeting.
-JII.
OVERVIEW
In accumulating the information necessary to complete this
report, different types of sources were utilized.
First, inter-
views were conducted with international trade specialists from
both the state and federal Chambers of Commerce.
ment publications and brochures were examined.
Next, governFinally, books
and magazine articles dealing with the topics of international
trade and exporting were studied.
At the present time, a number of export financing programs
are available to U.S. companies.
The type of program chosen by
a company will depend upon the amount of financing needed, the
repayment terms desired, the nature and purpose of the proposed
project, and the foreign country involved in the project, to
name a few.
The programs and services which will be examined
in this paper are those offered by the Export-Import Bank of
the United States, the Foreign Credit Insurance Association,
the OVerseas Private Investment Corporation, the International
Monetary Fund and the Domestic International Sales Corporation.
Following a detailed description of these programs and services,
the procedures for applying for them will be discussed.
Finally,
conditions within the United States affecting current international
trade and its future will be identified.
Each of the programs that have been included in this report
have applications to at least one of Diversified's products.
Until it has been determined which, if any, of the company's
products have sufficient market potential abroad, each of these
programs must be considered as a possibility for export financing.
-IfIII.
THE EXPORT-IMPORT BANK OF THE UNITED STATES
A.
BACKGROUND--PURPOSE
The Export-Import Bank of the United States (Exim Bank)
In 1945, the agency was established under
was created in 1934.
its present law to aid in the financing of U.S. exports.
Exim
Bank is directed to "facilitate, supplement and encourage and not
compete with private capital."l
agency of this country.
It is an independent government
Four statutes have been developed for
the Exim Bank. First, it must offer financing for U.S. exporters
that is competitive with the financing provided by foreign export
credit agencies that assist in the sales of their nations'
exporters.
Secondly, Exim Bank must determine that the transactions
supported provide for a reasonable assurance of repayment.
A third statute of Exim Bank is to supplement, but not compete
with, private sources of export financing.
Finally, the Exim
Bank must take into account the effect of its activities on
small businesses, the economy in the United States and employment in this country.
The Exim Bank offers direct loans and also cooperates
with commercial banks and the Foreign Credit Insurance Association.
The direct loans may only supplement private funds for the export
sale of U.S. services, capital items or projects involving a
substantial amount of capital that require longer repayment
terms.
In cooperating with commercial banks, Exim Bank provides
coverage for commercial and-_poli tical risks for short- and
medium-term loans.
At the present time, Exim Bank works in
conjunction with more than 250 commercial banks.
-5In addition to providing coverage against political and
commercial risks, Exim Bank also may provide a financial guarantee
to a commercial bank for part or all of the funds that are
provided by the bank in an export transaction.
At the present
time, "the Export-Import Bank is the largest single institution
whose purpose it is to assist in the financing of U.S. exports.,,2
B.
PROGRAMS/SERVICES OFFERED
There are several types of programs and policies available
to potential U.S. exporters.
The appropriate one for an exporter
is determined by the product mix, the terms of repayment, the
volume of the export business and the type of foreign buyer,
such as an end-user or a dealer.
Exim Bank's programs are
divided into three categories; short-term programs, mediumterm programs and long-term programs.
Short-Term Programs
Under the short-term programs, two basic types of insurance
policies are available.
of coverage.
These policies provide a blanket type
The exporter is usually required to insure all
or a reasonable amount of his eligible short-term export sales.
The Short-Term Master Policy covers one year of Shipments.
This policy insures all of an exporter's eligible short- and
medium-term sales with repayment terms of up to five years.
The exporter still retains the right to determine the amount of
insured credit limits that are extended to individual foreign
buyers within a discretionary credit limit.
An annual cumula-
tive commercial loss deductible is applied to this policy,
but this does not apply to political losses.
The Master Policy
-6-
-.
permits an exporter to keep his risks to a minimum on overseas
credit sales at a relatively low cost.
Also, he may extend
credit to overseas buyers as rapidly and with as little paperwork as possible.
The Master Policy may also be obtained for
coverage on only political risks with an appropriate premium
reduction.
The Master Policy will insure up to 90% of commercial
risks and 95% of political risks.
The second policy offered under short-term programs is the
Short-Term Comprehensive Policy.
This covers commercial risks,
such as a foreign buyer's insolvency or default and political
risks, including war and expropriation on sales of products on
terms of up to 180 days.
It includes a moderate discretionary
credit limit per buyer, which allows an exporter to obtain
insurance automatically for individual buyers, based on the
exporter's own credit decision.
An annual commercial first
loss deductible is usually included on this policy.
As with
the Master Policy, the exporter may receive a policy fur only
political risks.
The Comprehensive Policy insures up to 90%
of commercial risks and 95% of political risks.
Medium-Term Programs
At the present time, there are five Exim programs available
to support medium-term export sales.
These programs area the
Cooperative Financing Facility (CFF); the U.S. Commercial Bank
Guarantee Program; the FCIA Programs; Discount Loans to Commercial
Banks; and Bank-to-Bank Lines of Credit Guarantees.
The first program, the CFF, offers lines of credit to
cooperative foreign financial institutions. This is a mediumterm direct credit program.
It helps finance a foreign buyer's
-7purchase of U.S. goods and services.
The FCC program is
especially helpful to many small and medium-sized foreign buyers
who must usually seek financing through their local banks.
Under
this program, Exim will make a direct loan to a foreign financial
institution that is equal to 50% of the financed portion.
remaining amount must be provided by the foreign bank.
The
The
buyer involved must make a minimum 15% cash payment to be
eligible for this program.
If the foreign bank borrows its
half of the financed portion from a U.S. bank, then Exim may
guarantee repayment to the domestic bank as well.
However, the
foreign bank has to assume all of the commercial risk associated
in financing the end-user.
The second medium-term program offered is the U.S. Commercial Bank Guarantee Program.
This is offered in conjunction
with the Foreign Credit Insurance Association (FCIA).
The
financing necessary for the exporting is provided by either
the exporter or a commercial bank.
The program then protects
against both commercial and political risks, and guarantees
loans made by commercial banks.
or an Edge Act Corporation
m~y
Exporters, commercial banks,
apply for this assistance.
Repayment terms, based upon the contract value of the guarantee,
range from two to five years and covers contracts of up to
$200,000.
A cash payment of at least 15% of the contract
value is required.
Also, the U.S. exporter has to retain at
least 10% commercial risk on the financed portion, which is
the contract value minus the cash payment.
Four separate insurance policies comprise the FCIA Programs
offered by Exim.
repetitive policy.
The first is a medium-term single sale and
This covers credit sales of both capital and
-8-
-
quasi-capital goods on a buyer-by-buyer basis.
The exporter
. coverage on ~1~ s1ngle
.
may request select1ve
sales or on a
credit line basis
overseas buyer.
covering repetitive sales to one specified
A promissory note is needed for the financed
portion of the sales that provides for payment in U.S. dollars
in equal installments of principal.
The second FCIA Program policy is a combination policy that
combines short- and medium-term insurance.
It protects U.S.
exporters who sell to overseas dealers and distributors.
policy provides protection in two primary areas.
is inventory financing.
The first area
An exporter may ship goods under a
"floor plan") arrangement.
The initial coverage for this ar-
rangement is up to 270 days without a cash payment.
area of protection is in receivables financing.
up to three years for this protection.
of 15% is also required.
The
The second
Terms range
A minimum cash payment
The policy covers political and
commercial risks up to 90%.
The next FCIA policy is a master policy.
This policy
has terms that are identical to the master policy described
under the Short-Term Programs section.
Finally, the FCIA Program offers special coverage.
This
was introduced in 1972 to aid exporters that have unusual
circumstances.
The special coverages include exporting services,
preshipment coverage and political risk coverage for exporting
products on consignment.
The fourth medium-term program offered by Exim
Discount Loan Program for U.S. Commercial Banks.
is the
Under this
program, only fixed-rate transactions are eligible.
The purpose
-9of this program is to "overcome the limitations in the private
market's ability to provide competitive fixed-rate medium-term
financing.,,4
Exim will issue commitments to make loans and buy
notes from participating U.S. commercial banks when they will
not finance an export sale without a discount loan.
The commit-
ment made by Exim will cover 100% of the financed portion of the
sale.
Then, a debt obligation is purchased from the U.S.
exporter or received from the foreign buyer if a bank finances
the buyer directly.
Under the Discouf Loan Program, a commit-
ment fee is charged to a commercial bank.
This is a one-time
fee that is based upon the amount of the authorized discount
loan and the total term of commitment.
This fee is due within
120 days of the date of Exim's commitment letter.
After paying
the commitment fee, a commercial bank may borrow one time from
Exim at any time during the life of the note.
The amount
borrowed may be as much as the amount of the note.
The final medium-term Exim program is the Bank-to-Bank
Line of Credit Guarantee.
This program provides that Exim
will guarantee repayment on a medium-term revolving line of
credit extended by a U.S. commercial bank to a foreign financial
institution, usually in a non-industrialized country.
The line
of credit would be used by the foreign bank to finance customer
purchases of U.S. capital goods.
This program follows the
guidelines established for the U.S. Commercial Bank Guarantee
Program, which was explained previously.
Long-Term Programs
Exim's long-term programs basically provide supplemental
financing.
The repayment terms for the financed portion ranges
from five to ten years.
A cash payment is required from the
-10foreign buyer for at least 15% of the U.S. contract value.
Exim will consider making a long-term direct loan only for the
portion that has not already been assumed by commercial banks
and other private sector institutions.
are also
~
Financial guarantees
considered to cover the private loans.
Transactions
that amount to under $5 million will be reviewed to see if
bank guarantees or FCIA insurance programs are available prior
to issuing a direct loan.
To be eligible for a direct loan from Exim, the U.S. goods
involved in a transaction must be transported to foreign countries
in vessels that are registered in the United States, if they are
shipped by ocean freight.
A waiver must be obtained by the
borrowers from the U.S. Maritime Administration to be exempt
from this rule.
Also, a reasonable reassurance of repayment
must be established before a direct loan is made.
In addition to the programs already listed, Exim Bank
offers additional aid to U.S. exporters.
These programs include
feasibility studies on both products and countries, pre-investment
counseling and small business counseling.
All of these activities
are offered by Exim to help exporters determine their most
promising markets prior to investing their time and money into
exporting.
-11IV.
THE FOREIGN CREDIT INSURANCE ASSOCIATION
A.
BACKGROUND--PURPOSE
The Foreign Credit Insurance Association (FCIA) was created
in 1961.
Its purpose is to give U.S. exporters the means to
become internationally competitive.
The FCIA tries to accomplish
this by insuring U.S. exports against commercial and political
risks with more competitive terms for foreign buyers.
This
type of coverage "helps exporters to offer credit terms that
are more favorable for foreign buyers and to obtain financing
of foreign receivables. ,,5
The FCIA is an association of ap-
proximately fifty of the nation's leading insurance companies.
It operates in cooperation with the Export-Import Bank of the
-
United States.
By 1981,"over 8,000 large, small and medium-
sized firms had used FCIA insurance services.,,6
It is important to note that the FCIA does not finance
export sales.
However, an exporter who insures his accounts
receivables against commercial and political risk loss can
usually obtain financing from banks and other lending institutions at lower rates and with more liberal terms than otherwise.
The exporter uses his FCIA insurance as collateral for these
loans.
With lower interest rates, the exporter may extend
credit to foreign buyers on lower terms without tying up his
own resources that may be needed for internal operations.
In addition, a company that receives an FCIA policy may find
"a more harmonious working relationship between an exporter's
marketing and financial executives, which expedites processing
of orders received from customers abroad."?
-12In summary, an FCIA insurance policy for exporters may
improve the exporting conditions in several ways.
First, it
will protect an exporter against the failure of the foreign
buyer to pay his monetary obligation for commercial and/or
political reasons.
Secondly, it will encourage an exporter
to offer more competitive terms of payment to foreign buyers.
Thirdly, an4 FCIA insurance policy may allow an exporter to
penetrate a
returns.
highe~risk
foreign market offering higher potential
Finally, an insurance policy from the FCIA gives an
exporter greater financial liquidity and flexibility in
managing his foreign receivables.
B.
PROGRAMS/SERVICES OFFERED
The FCIA offers four insurance policies to a typical
U.S. exporter.
In addition to these policies, the association
also provides special coverages to specific companies having
specific needs.
This section has been divided to discuss the
regular insurance policies first and the special coverage policies
second.
Insurance Policies
The major form of coverage provided by the FCIA is the
Master Policy.
This policy enables a U.S. exporter to expand
international sales through the use of competitive credit terms.
It lets exporters have increased flexibility in financing with
commercial banks.
It also helps the insured enter into higher
risk markets, as well as helping to retain foreign buyers once
they have been located.
This policy is written for shipments made during a one-year
period.
Automatic coverage is also provided for all, or a
-1)-
reasonable amount, _of an exporter's sales to overseas buyers on
credit terms that can range up to five years.
Both short-term
sales, with repayment terms up to 180 days, and medium-term
sales stretching repayment out five years and longer, can be
insured separately or in combination under the Master Policy.
This policy does have a credit limit.
exporter may
An
make credit decisions for independent shipments up to the
Discretionary Credit Limit (DCL) stated in the policy.
A
Special Buyer Credit Limit (SBCL) is available, however, for
larger amounts.
The SBCL is subject to study by the FCIA.
Also included in this policy is a deductible.
It applies
only to commercial risk coverage on an annual cumulative basis.
Political losses are not included because these are are usually
unforeseen.
The Master Policy will provide up to 90% coverage on
commercial losses and 100% on political losses.
For short-
term sales, this coverage applies to the total involve value
of the sale.
Medium-term sales require a minimum 15% cash
payment by the buyer on or before the products' delivery.
This coverage, therefore, applies to the financed portion of
the sales.
Because of the features of the Master
Policy~
such as
the deductible, this policy provides exporters the lowest
premium of all of the FCIA policies that are now available.
Also, the Master Policy requires a minimum of paperwork and
processing time.
The second policy that is offered by the FCIA is the
Short-Term Policy.
Raw materials, consumer goods and similar
items are usually covered under this policy.
The terms for
-14-
--
this policy range. from sight
draf~to
180 days.
The Short-
Term Policy covers all of the short-term exports against
commercial credit risk and/or political risk.
This policy
has been developed for products that have a high turnover.
The third regular FCIA policy is the Medium-Term Policy.
This one covers capital and quasi-capital goods that are
manufactured primarily in the United States.
These goods
include machinery, plant equipment and other income-producing
goods.
Under this policy, an exporter does not have to insure all
of his medium-term sales.
case basis.
The policy is written on a case-by-
Single sales or repetitive sales may be included
on the Medium-Term Policy.
Terms include a 15 to 20% cash
payment by the foreign buyer on or before delivery.
The
balance must then be paid in predetermined installments, extending from six months to five years.
The policy usually
covers 90% of commercial credit risks and 100% of political
risks.
The
6%
interest charge
included on the foreign buyer's
payment schedule is also covered under this policy.
The fourth and final regular policy offered by the FCIA
is the Combination Policy.
This is a combination of the Short-
Term and Medium-Term Policies already described.
The main
purpose of this policy is to protect U.S. exporters in transactions which include overseas dealers and distributors.
Commercial and political risk protection is provided for three
areas of the export sale.
First, parts and accessories are
covered on terms up to 180 days.
is protected.
Secondly, inventory financing
If an exporter must make several deliveries for
-15one overseas sale, he may receive up to 270 days coverage with
no down payment.
Finally, his accounts receivables financing
is protected with terms typically up to three years.
This
would apply following a minimum cash payment upon a resale by
the foreign dealer or at the end of the inventory period.
Medium-term coverage would become available when the products
are sold to an end-user on extended terms.
Before the conver-
sion to a medium-term policy is effective, however, the dealer
must make the usual 15% cash payment.
The coverage by the FCIA
would be given to the financed portion, including interest of
up to
6%.
Special Coverages
In addition to the policies described above, the FCIA
offers special coverages to exporters.
These policies include the
Small Business Policy, Bank Programs and unique needs additions.
The Small Business Policy is designed for companies that are
just starting export sales or have only limited volume.
It
is patterned after the Master Policy, but gives added commercial
risk
;.f
protection~up
to 95% and does not have a deductible.
To be eligible for the Small Business Policy, companies
should meet the following criteria:
they must have a net worth
not exceeding $2 million; they must have exported less than
$750,000 per year, averaged over a two-year period; and they
must not have previously been insured either directly or indirectly under any FCIA program.
The Bank Programs offered by the FCIA have been expanding
in recent years to keep pace with the increasing role of
financial institutions in U.S. exports.
These programs offer
-16insurance protection against potential default of a foreign
receivable for either commercial or political reasons.
This
gives a bank the needed risk coverage in expanding exportrelated business.
The banks can profit from this because it
increases their marketing and leveraging potentials.
The
banks can extend credit lines directly to foreign companies to
finance the purchase of U.S. goods.
Coverage under the Bank
Programs is the standard 90% commercial and 100% political,
and does not include a deductible.
A portion of the 10% of
commercial risk retention may be shared with the bank's exporter's
clients.
Some exporters have unique needs when looking for an
appropriate insurance policy.
For these people, the FCIA
has special coverages which may be included on their policies.
Preshipment cov.erage insures against specified risks from
the date of execution of the sales contract.
begins from the date of shipment.
Usually, coverage
Exporters especially like
this coverage when their products are manufactured specially
for exporting or when their products require a long factory
leadtime.
An additional coverage which may be included on
an insurance policy covers political risks for goods that
are sold on consignment.
This is important, because the exporter
has to retain the title of the goods until they are sold overseas.
-17V.
THE OVERSEAS PRIVATE INVESTMENT CORPORATION
A.
BACKGROUND--PURPOSE
The concept of providing political risk insurance to U.S.
companies selling overseas dates back to 1948.
year that the Marshall Plan came into effect.
It was in this
At that time,
insurance was offered to protect against the risk of currency
inconvertibility in Europe.
That part of the world needed a
way to rebuild after World War II, and the Marshall Plan provided
a way to generate capital.
In the 1950's, the insurance program
changed to include developing countries. The insurance program shifted to the newly-formed Agency
for International Development (AID) in 1961. "The primary purpose
of this agency was, and still is, the administration of governmentto-government assistance. tl8 It was because of its purpose that,
in 1969, Congress decided that a separate, businessli!te
agency
should be established to provide tlmore effective support for
American investors entering the international marketplace. ,,9
The Overseas Private Investment Corporation (OPIC) was
the outcome of the ruling made by Congress in 1969.
It is
organized as a corporation, and it is structured to2~pen for
private businesses.
OPIC began operations in 1971.
The
agency's mandate is to "mobilize and facilitate the participation
of U.S. private capital and skills in the economic and social
development of less developed, friendly countries and areas ... 10
OPIC also helps American companies identify, invest in and
start profitable business opportunities in most of the 100
less-developed countries around the world.
-18In terms of financial assistance for operations, OPIC is
an independent agency.
It has not received any funds beyond
what it was appropriated to become operational in 1971.
It should
be noted that the agency has recorded a positive net income
for each year of its existence.
As of 1982, the agency had
reserves in exess of $700 million.
Since 1971, OPIC has helped
more than 500 U.S. companies establish production or service
facilities or branches in approximately 90 countries.
Companies do have to meet certain requirements before they
are eligible for OPIC's programs.
These requirements are as
followss 11
1.
The investor's project must be a new venture or an
expansion of an existing enterprise.
2.
The project must be located in a developing country
where OPIC operates.
3.
The project must assist in the social and economic
development of the host country.
4.
The project must be approved by the host government.
5.
The project must be consistent with the economic
interests of the United States and will not have a
significant adverse effect on the U.S. economy or
on the U.S. employment.
6.
OPIC will not support a "runaway plant" project, which
includes closing down a U.S. facility to open a foreign
facility where the same projects or services will be
produced for the same markets as before.
7.
OPIC cannot support certain other types of projects,
including gambling facilities, distilleries, military
projects, and projects posing serious environmental
hazards.
If a company meets this list, then they are eligible to
receive OPIC's aid.
However, each program offered by OPIC
has additional criteria that must be met before a company can
'-(:
receive the program ~ has chosen.
These extra requirements
will be listed under the appropriate programs.
-19B.
PROGRAMS/SERVICES OFFERED
OPIC offers insurance, loan guarantees and special programs
to U.S. exporters and investors.
All of these programs have
been developed by the agency to meet the changing needs of
companies wishing to sell abroad.
Insurance Programs
U.S. investments may be insured against three major types
of political risks with an OPIC policy.
inconvertibility.
The first risk is
The coverage will protect an investor against
the inablility to convert the local currency received as profits,
earnings or return of capital on an investment into U.S. dollars.
This coverage does not protect against the devaluation of a
country's currency; rather, it assures that the currency will
be exchanged for U.S. dollars at the rate the local currency
was at the time the insurance was issued.
The inconvertibility
coverage also protects a company against adverse discriminatory
exchange rates.
The second coverage protects against expropriation.
This
means that an investor is covered against confistication or
nationalization of his investments without fair compensation.
It also protects against losses due to a number of situations
..
. t·lon... 12
th a t may b e d escrl. b e d as .
creeplng
exproprla
Th·lS
includes actions in a country which have a cumUlative effect of
depriving investors of the.
primary rights of their investments.
Actions that are provoked by an insured investor, however, are
not covered.
The third area of political risks which may be covered
under OPIC's insurance program include war, revolution, insurrection and civil strife.
An investor may receive protection
-20-
against war, whether or not it has been officially declared;
revolution; and insurrection within the country.
Coverage is
also available against losses due to politically motivated,
violent acts, such as terrorism.
This civil strife protection
can be obtained only as a rider to OPIC's coverage against
war, revolution and insurrection, however.
Also, losses that
are caused by individuals or groups that are not politically
motivated, such as student groups, are not covered.
The premiums charged for OPIC's insurance depend upon
which types of coverage are desired by each company.
The
rate is based upon the nature and risk profile of a company's
project, and not upon which country the project is going to
be developed in.
Each type of coverage has a rate, and the
more types a company desires, the higher the premium of the
insurance.
The following rates are typical for most of the
projects reviewed by OPIC, although different rates may apply
to special coverages,1)
COVERAGE
ANNUAL BASE RATE
PER $100 OF COVERAGE
Inconvertibility
Expropriation
War/Revolution/Insurrection
*Civil Strife Rider
JO¢
60¢
60¢
15¢
Generally;-OPIC will cover no more than 90% of any investment,
plus its earnings.
There are three additional requirements that companies or
investors must meet before they can receive an insurance policy
from OPIC.
First, the investor{s) must be U.S. citizens.
Secondly,
a corporation, partnership or other business organization must be
-21I
C"iZ.poJ;i{ -f,'t:.Ji.
at least
50% owned by the United
State~
Lastly, if a foreign
corporation, partnership or other business ownership is seeking
aid, it must be of at least
95% ownership by either U.S. investors
or U.S. corporations.
Financing Programs
Currently, OPIC provides financing to investors through
two major programs.
These programs are for U.S. investors who
plan to share significantly in the equity and management of an
overseas venture.
The financing is primarily for medium- to
long-term projects.
The first program is making direct loans.
These loans range from $100,000 to $4 million, and are available
only for ventures that are sponsored by, or significantly involving
U.S. small businesses.
These businesses are those smaller in terms
of net worth or revenue than those listed in "Fortune 1000" list
of corporations.
Rates for the direct loans vary according to
a project's financial and political risks.
The second major financing program of OPIC is financial
guarantees.
This program is available to all businesses, regard-
less of their size.
OPIC will issue a guarantee covering both
commercial and political risk to a company, which will aid in
obtaining funding from financial institutions.
Generally, these
guarantees range from $1 million to $25 million, but they may
be as large as $50 million.
Repayment of both direct and
guaranteed loans may usually be made in equal, semi-annual
payments following a grace period.
Maturity on these loans
may range from five to twelve years.
Requirements to be met for financing programs are not as
structured as with some of OPIC's other programs.
Direct loans
-22are issued only for investment projects that are sponsored by,
or significantly involving, U.S. small businesses or organizations.
Loan guarantees will be issued to U.S. lenders that have over
50% U.S. ownership, or foreign lending institutions that are at
least 95% owned by the United States (..,,:,p,.<:;} /lll/IZJ:f/1 00'.
Special Programs
Several special programs have been developed to meet
specific needs of investors involved in contracting and exporting,
energy-related businesses and leasing arrangements.
Also,
investment encouragement programs are offered to aid in preinvestment decisions.
The Contractors'and Exporters' Program was developed to
improve the competitive position of U.S. contractors and exporters
who seek business in developing nations.
Specialized insurance
and financing services are included in this program.
Insurance
is available at discounted rates for protection against currency
inconvertibility; confiscation of tangible assets; confiscation
of bank accounts; and arbitrary or unfair creating of standby
/
letters of credit.
These letters of credit are sometimes required
when foreign firms post bid performance or advance payment
guarantees during the bid time or performance of overseas contracts.
Special insurance and finance programs for U.S. investors
involved in oil and gas, oil shale, mineral, solar and other
energy projects are also available under the Energy Program.
The program is open for investors and companies that supply
support services or goods for commercial energy projects as well.
Once a commercially feasible energy project has been established,
OPIC may provide a loan guarantee of up to $50 million to finance
as much as 50% of the costs involved in the project.
If the
-2Jproject is an expansion of an existing facility or service,
then OPIC may finance as much as 75% of the project.
maturities
~ld
Loan
guarantee fees for energy projects are structured
like other financing programs.
It should be noted, however,
that insurance and financial services are not available for
oil or gas projects in member nations of the Organization of
Petroleum Exporting Countries (OPEC).
The services of OPIC
are available for companies providing goods and services to
oil and gas projects already operating in OPEC countries.
A third special program offered by OPIC involves international leasing.
Political risk insurance is available for cross-
border operations and capital leases that run for at least thirtysix months.
Coverage is available for a lease transation; an
equity investment in or loan to, off-shore leasing companies;
inventory on consignment; and management or maintenance agreements that involve leasing firms.
OPIC's loan guarantee program
is also available to foreign leasing companies that have a
large U.S. private business interest.
size from $500,000 to $20million.
The guarantees range in
Repayment terms usually run
from four to seven years, after a grace period.
The final specialty of OPIC is its Investment Encouragement
Programs.
Two major programs comprise this area, and they are
provided to further the amount of private investment in developing
countries.
These programs are feasibility
project grants and loans.
stu~ies
and special
Potential markets in developing
countries and financing to determine these markets are given
to investors who seek these programs.
-------------------------
-24VI.
THE INTERNATIONAL MONETARY FUND
A.
BACKGROUND--PURPOSE
The International Monetary Fund (IMF) was created by the
Bretton Woods Economic Conference of 1944.
The Conference
involved lengthy discussions of proposals that were drafted
by the United States, Great Britain, Canada and France during
World War II.
The purpose of these proposals was to establish
an entity that would promote exchange rate stability without
restoring an international gold standard.
Also, the countries
did not want to diminish national independence of monetary and
fiscal policies.
A compromise was finally reached at the
Bretton Woods Conference, and the Articles of Agreement of the
International Monetary Fund were formed.
Enough countries
ratified the Articles of Agreement by the end of 1945, and
the IMF came into existence.
Today there are 146 member coun-
tries in the IMF.
Several purposes of the IMF were included in the Articles
of Agreement.
The IMF is supposed to
••• promote international monetary cooperation,
facilitate the expansion of international trade for
the sake of high levels of employment and real income,
promote exchange rate stability and avoid competitive
depreciation, work for a multilateral system of current
international payments and for elimination of exchange
controls over current transactions, create confidence
among member nations and give them the opportunity to
correct balance of payments maladjustments while avoiding
measures destructive of national and international
prosperity, and make balance-of-payments disequilibriu~s
shorter and less severe than they would otherwise be. 1
The purpose.? of the IMFare,h:owever, rather vague in
in stating what the Fund should do.
More specifically, the
-25IMF provides drawing rights, or loans, to its member nations to
meet temporary deficits.
The rights of the member countries to
draw on their accounts in the IMF, as well as their voting power
in the organization, depend$ upon the quota which they are
required to pay into the Fund.
The IMF does have power over granting loans to countries.
It has the authority to limit any member's use of resources if
it believes that the money is being used improperly.
It may
also declare certain members of the Fund ineligible for loans,
or it may
e~en
rate changes.
expel them if they make unauthorized exchangeThe IMF may also veto exchange-rate changes
that go beyond a specified limit.
Finally, the IMF has the
authority to suspend certain provisions of the Articles of
Agreement when it is considered necessary.
In recent years, the IMF has been faced with numerous difficulties.
Tremendous amounts of money have been loaned to
developing countries, such as Mexico, and these loans are now
in danger of default.
Also, member countries, including the
United States, protest the quota increases that the IMF has
requested.
Many feel that asking for additional money from
the countries will not rectify the bad-loan situation that the
IMF is faced with now.
B.
PROGRAMS/SERVICES OFFERED
Because of the structure of the IMF, it is not allowed to
make loans to corporations or individuals.
(. 0 .-l()T ("i cS i
Only the member
e&URtry governments are allowed to draw from the accounts.
The
borrowed money is then intended to be used to correct or delay
-26short-term balance of payment problems.
However, the money
that is borrowed from the IMF by member country governments
does have an effect on export financing.
The amount of money
loaned by a country affects the amount of financing available
for foreign investors, and it also affects the terms applicable
to these financings.
"The Fund does not lend for specific pro-
jects, but, because it promotes international economic and
exchange stability in its member nations, it contributes invaluably to the quality of international investments.,,15
The current overextension of loans made by the IMF has had a
negative effect on export credit terms for many countries.
It
is important for a potential foreign investor or company to
find out what the targeted country has borrowed from the IMF,
how its current repayment schedule appears, and how the loans
have affected the country's import demand and credit terms.
The Fund provides more than money to its member nations.
It is also an advisory organization, and it tries to work closely
with its member nations on investment decisions.
also
~ffects
exports and export financing.
This counseling
Although the Fund
has not been particularlly effective in providing investment
information to countries, it could, in the future, expand this
function to make it help countries find prospective companies
and investors who are willing to finance positive growth within
their boundaries.
c.
THE FUTURE FOR THE INTERNATIONAL MONETARY FUND
At the present time, the IMF is faced with some major
problems regarding its future.
It appears as though many of
the developing nations will never be able to repay their huge
-2?loans, and the IMF must deal with this in a way that will not
destroy it or the world financial scene.
Also, another problem
the IMF must contend with is what it will be able to do to
improve trading between member countries.
A proposal that
tackles this problem has been developed by Harold Lever. 16
He has stated that the various export credit agencies in the
rJ...~;,e(\c..y
world should set up a
central..:.t~This
daily contact with the IMF.
agency would be in close,
The purpose of the central agency
would be to determine for which indebted, developing countries
individual credit agencies would be willing to guarantee bank
loans.
This information would be given to central banks, who
could then develop workable loans with the credit agencies and
the developing countries.
"The needs of developing countries
could again become manageable within the support of the IMF
and aid quotas."l?
The IMF would provide advice to the central
agency, and would also grant loans to countries that have been
selected to receive private funding from central banks.
This proposed system would combine public and private
financing.
It could become an effective system that would main-
tain and finance world trade, stabilize existing bank debts
and would bring adjustments to the poorer economies.
In any event, the IMF must make modifications in its present
mode of operating.
If it does not, the entire world will feel
the effects of decreased world trade and much less financing for
foreign trading.
-28VII.
THE DOMESTIC INTERNATIONAL SALES CORPORATION
A.
BACKGROUND--PURPOSE
Domestic International Sales Corporations (DISCs) were
created by the Revenue Act of 1971.
The Act was designed "to
create a strong, tax-based incentive to corporations engaged
exclusively in international trade. n18 A DISC is categorized as
a corporation under the Tax Code, but, "simply put, they are
paper subsidiaries of U.S. corporations that handle overseas
sales. n19 A DISC is treated as if it were a foreign-based
corporation and not supject to U.S. Federal income taxes.
The purpose of creating DISCs was to increase U.S. exports
by providing a tax incentive.
DISC has provided participating
companies with an incentive, but nevertheless, the program has
had a history of conflict and controversy.
Since its inception,
DISC has been accused of violating the terms of the General
Agreement on Tariffs and Trade (GATT).
Several members of
GATT have charged that DISC violates GATT regulation because
its tax deferrals give U.s. companies an unfair pricing advantage.
The controversy over DISC has continued up to the present.
In 1982, however, the Reagan Administration agreed to modify
DISC leglislation.
At the present time, a bill has been proposed
to change several of DISCs features, but it is still uncertain
as to the effects that these proposed changes will have on
D[SC and on U.S. exporting.
Two DISC regulations have already
been invalidated by the Tax Court.
The bill proposed by the
Reagan Administration and its implications
a description of
DIS~s
present provisions.
-~~-.--
.. -....
--~------~--.
----
-29B.
PROGRAMS/SERVICES OFFERED
A business that sets up a DISC, in effect, establishes a
separate corporation.
Originally, a DISC allowed a company to
defer Federal income taxes on 50% of its export income until
that deferred income was distributed to the DISC shareholders
in the United States.
This feature created several conflicts
shortly after DISC leglislation was enacted.
It seems that
the deferrals of a DISC could not become taxable until the time
that the DISC ceased to exist.
Because a DISC appears only on
paper, however, the chances that it would ever close are slim.
Therefore, the deferrals, or at least a large amount of them,
would stay deferred forever.
This created anger and confusion
among the members of GATT, as well as aJ~g the Internal Revenue
Service.
The tax deferral was later limited to profits on
DISC's increased income, but the change has not made much of
an impact on the amount of tax deferrals for DISCs.
On
average,
taxes on foreign earnings of companies using DISCs have been
reduced by 18%.
The tax-free earnings of the companies are
retained and should be invested into export-related assets,
including foreign accounts receivables.
A DISC also offers other features to its user.
Special
intercompany pricing rules, which apply to sales that occur
between a DISC and a related manufacturer are also allowed.
The additional profit that is gained from these pricing rules
is greater than what usually is allowed under the pricing
provisions of the Tax Code.
DISCs may act either as principals or as agents, as long as
7h~ ~~
engaged in the business of exporting products that are
-)0-
"manufactured, produced, grown or extracted,,20 in the United
States.
A DISC may handle the exports of any number of U.S.
producers, whether related or unrelated.
It may also be owned
jointly by several small companies that sell complementary
products.
Its overseas customers may be related or unrelated
purchasers as well.
Even a corporation engaged in manufacturing
or in nonexport sales may organize a DISC if it wishes to enter
into exporting.
There are requirements that must be met by a company setting
up a DISC.
The DISC must receive at least 95% of its income from
qualified export arrangements.
Also, it must have at least
95% of its assets r.elated to exports.
Working operations must
also meet certain requirements for a DISC.
First of all, it
is required to have a minimum of $2,500 paid-in capital.
It
must have only one class of stock, but it does not have to have
a specified amount of shareholders.
Thirdly, a DISC must
submit a statement with the Internal Revenue Service that
has been previously agreed upon by the shareholders that states
its terms as a DISC.
Finally, the DISC must maintain its own
bank account and accounting records.
C.
FUTURE OF DOMESTIC INTERNATIONAL SALES CORPORATIONS
Because different organizations have either charged or
ruled that some of the current DISC provisions are illegal,
changes will have to be made to protect the future of this
tax incentive.
A bill that addresses this problem is now being
discussed in congressional hearings.
of
DIS~will
Several major modifications
be made if this bill is passed.
First, the name
-31of the tax-saving entity will be changed from DISC to Foreign
Sales Corporations, or FSCs.
Secondly, the FSCs will have to
maintain one foreign account.
They will also have to have an
actual foreign presence, with offices,
one foreign director.
employees, and at least
This will be a change from the current
"paper subsidiary only" status of DISCs.
Thirdly, the FSC must
actively pursue overseas business opportunities.
benefits will be decreased substantially.
a flat 17% exemption on foreign income.
Finally, tax
FSCs will be allowed
The taxes that have
been deferred over the past 13 years will be forgiven by the
U.S. Government.
The total amount of deferred taxes amounts to
over $17 billion.
It is not certain if FSCs will provide a solution to the
current problems associated with DISCs, and the proposed bill
has some critics.
Trading partners believe that these changes
will not go far enough in relieving the problems.
Companies
that have already established DISCs do_not believe that the bill
will help their plight.
The bill "won't help companies in
high-volume, low-margin businesses such as agriculture or wholesaling.
Their administrative costs will outweigh benefits. ,,21
-)2-
VIII. PROCEDURES FOR APPLYING FOR EXPORT FINANCING PROGRAMS
The organizations that offer export financing programs
do not use a standard application form for assistance requests.
Instead, the stage of development of the transaction that is to
be financed will determine how a company should request a program.
The two
m~:thQds
that a company can use to request assis-
tance are for preliminary commitments or final loans or guarantees.
Preliminary Commitments
Preliminary commitments are often issued when a project is
in an early stage of development.
reasons.
It is primarily for marketing
A preliminary commitment will outline the amount, terms,
and conditions of financial assistance an agency will be prepared to extend to purchasers of U.S. goods and services.
This can be used advantageously by U.S. exporters in their
marketing efforts, and it is especially useful for companies
that must submit proposals in response to bid invitations that
require financing plans.
Buyers are assured early in the nego-
tiations that there will be financial assistance.
Applications for preliminary commitments may be submitted
by a prospective overseas buyer, a U.S. exporter, or a participating financial institution.
The application letter should
include enough information to allow the exporting agency to
appraise the financial, economic and technical aspects of the
proposed transaction.
As a rule, the following information
should be included in the application letter:
1.
The country, name, and address of the borrower, ownership of the borrower and a brief operational history;
-332.
The purpose of the proposed U.S. financing and its
relationship to the total cost of the project, including
a description of the financing plan for the project or
product~
3.
A description of the equipment to be purchased with the
proposed financing. The name and address of any U.S.
supplier selected for the equipment purchases, along
with estimated dates for equipment delivery, project
completion, and start-up on commercial operations must
also be included~
4.
A copy of a bid Qocument, if responding to a bid invitation~
5.
An indication of whether or not the proposed financing
will be guaranteed by the government of the host country,
foreign financial institution or any other guarantor.
Audited financial statements of the guarantor must also
be supplied, unless the guarantee is from a government.
6.
The latest audited financial statements from the borrower and explanatory notes. Statements must be from
at least two consecutive years~
7.
The borrower's projected financial data for the next
five year or longer. If proof of repayment may be made
based upon the borrower's financial strength and/or
the guarantor's strength, then submission of the projected
financial data may be deferred until the borrower makes
an application for final commitment,
8.
Engineering and marketing data that demonstrates the
technical and economic feasibility of transactions.
At least a summary of engineering and marketing data
that includes target markets must be listed;
9.
Information that is known about foreign competition
for this sale, including foreign sUbstitutions and
financing terms offered. The source and accuracy of
this information should also be mentioned,
10.
If the request is made by a U.S. company, the effects
that the sale will have upon employment in the appropriate plants and facilities should be described, as
well as the impact it will have on small and minorityowned enterprises, if it is known. Productivity
should be included, too.
11.
Any efforts that have been made to obtain financing
from other agencies and private sourcesJ
12.
Any other relevant information about the project.
-)4Final Commitments
Applications for final commitments for direct loans and
financial guarantees must be submitted by either the prospective
borrower or lender.
It should be noted that companies obtaining
a preliminary commitment must still apply for a final commitment
by either mail or telex to convert the preliminary commitment
to a loan or financial guarantee.
The letter of application for a final commitment must
include enough informations for the agency to determine the
financial, economic and technical aspects of the export transaction.
Even more information is required for the final com-
mitment than for a preliminary one.
required for a final commitment
The information that is
includes:'~
1.
The country, name, and address of the borrower, ownership of the borrower and an operations history,
2.
The borrower's organization and legal basis for operation; its present and planned activities; its plant
location(s); the products that is produces; markets;
and names and positions of persons who will be responsible
for the exporting project;
).
The purpose of the proposed loan, including the list
of equipment to be purohased, suppli=ers, volume
and kind of goods to be produced. Also, any benefits
to the host country's development program and foreign
exchange position should be included;
4.
The total cost of the project, showing U.S., foreign
and local funds that will be required. Also include
all sources of these funds. The applicant must specify
the sources of funds in excess of estimated cost of the
project that may later be needed to complete the projec~t;
5.
Audited financial statement of the borrower for the
latest three years, including balance sheets, profitloss statements, source/applicatiomof funds, and
descriptions of other relevant statements;
-356.
Estimates of future earnings and financial position,
including detailed projected profit and loss statements,
balance sheets, and comments for at least the first five
years of the project's operation;
7.
A cash flow statement that shows sources and applications
of funds on an annual basis for the first five years;
8.
Whether or not the repayment of the proposed financing
will be unconditionally guaranteed by the host country
government, financial institutions or any other agency,
and auditied financial statements for these guarantors
for the latest three years;
9.
Detailed economic and marketing feasibility studies,
along with technical data to ensure the project's
economical and technical soundness;
10.
Foreign competition information for the sale, including
the availability of similar items from other countries
and companies and financing terms offered by foreign
countries;
11.
Any additional information that would be relevant
for the project.
Many factors will be considered by the agencies before a
decision will be made on whether or not the financing will be
available.
The projedt or sales transaction must be able to
maintain profitable operations and contribute to domestic economic
and social development, as well as foreign development.
The
project must also be accepted in the foreign country, and it
cannnt operate under illegal or blatantly immoral practices.
Applications for insurance are quite similar to those for
loans and financial guarantees.
All of the information included
in the monetary applications should also be listed in an application for insurance protection.
-)6IX.
CONDITIONS AFFECTING U.S. EXPORTS
A.
DOMESTIC ATTITUDES
Although the United States has been trying to increase
exports in recent years, there has been problems in achieving
this goal.
Laws and regulations concerning international trade
and domestic issues have complicated and conflicted with the
export objectives.
been inadequate.
Also, financing and aid for exporters have
Several attitudes and perceptions held by the
United States have been at least partially responsible for this
conflict.
Export policies are directly affected by the feelings
of the country.
During recent years, the attitudes that have
guided policy developments have created a confl,ict between them
and attempts to increase exporting.
Three different attitudes
have been identified that have contributed negatively to the
export legislation.
The first attitude is the view that the United States has
the power to influence foreign and domestic policies of other
countries.
Although this may be true in some certain instances,
it is an unrealistic attitude.
The distribution of power in
this world has changed dramatically in recent years.
The United
States has actually lost some of its international influence, while
other, more productive countries such as Japan and West Germany
have increased their power.
The U.S. is influential in aiding
other countries, but not in dictating their policies.
The second perception that has affected legislation is that
Americans believe that the country should take a moral stance
in international affairs and conflicts.
In addition to this, it
-37is also felt that the allies of the U.S. should support the
same causes as this country, regardless of their own convictions.
When an ally chooses not to side with the United States, internal
feelings of distrust arise.
Another problem created from this
attitude involvei political actions that are taken to defend a
stance.
Export embargoes are an example of this.
Companies
previously involved with countries that have economic sanctions
started against them suffer from lost sales.
Even after an em-
bargo is lifted, foreign customers often refuse to negotiate
sales with U.S. exporters.
They believe that the uncertainty of
another embargo is not worth the risk of a transaction.
A third attitude complicating export policies is that of
nationalism or protectionism.
This country stresses the importance
of national goals and products instead of international ones.
The U. S. suffers from a "lack of export consciousness. ,,2a. The
Government has not developed a strong, solid foreign policy to
follow.
The general reaction towards exporting in the United
States in usually one of either disinterest or distrust.
B.
EXPORT DISINCENTIVES
The negative effect that domestic attitudes has on exporting
is apparent in the numerous export barriers that have been created.
These disincentives can be classified as
being~direct
or indirect.
Direct Disincentives
The direct disincentives found in the United States are in
the form of federal regulations that are directed at international
operations.
These regulations may have been formed to protect
U.S. investors abroad, but they have resulted in stunting export
-]8-
growth.
The first regulation that has had a serious negative
impact on exporting is the Foreign Corrupt Practices Act.
The
purpose of this Act was to eliminate payments that were being
made by U.S. companies to foreign businessmen and officials.
The
payments would "help" a company's chances in conducting business
in these countries.
The United States, however, views this
practice as being unethical and illegal.
The Act has not stopped
the payments from being made by other countries and companies,
however.
The areas which use this procedure find it to be entirely
ethical and legal, and in many instances, the only way to make
a transaction occur.
U.s. sales in these countries have declined
significantly since the Act was
est~blished.
The second direct disincentive is the income taxation of
income earned by U.S. citizens living abroad.
This legislation
creates a double taxation for the persons working in other
countries.
Expansion of international trading has been slowed
because of this regulation.
A company may wish to open branches
in foreign countries, but most employees would find it to be
unprofitable to move to a foreign country and still pay income
tax to the Federal Government.
Additional regulations that impede export growth are export
embargoes or restrictions that have been established to increase
effec1iveness of foreign policy objectives, the uncertainty
surrounding foreign tax credits and incentives and anti-boycott
legislation.
In general, it appears that the Federal Government
has "an essentially reactive trade policy rather than an anticipatory one based on economic projections 5 to 10 years ahead."2.i
-39Indirect Disincentives
In addition to the export disincentives that have been
created directly by federal regulations for international
operations, deterrents have also arisen from domestic legislation.
Included in these disincentives are the Occupational Safety and
Health Act (03HA) and the Environmental Protection Agency's
Clean Air Act and Water Pollution Control Act.
These regulations
increase the amount of paperwork, personnel and capital outlay
required to maintain domestic operations.
The effect of these
regulations, in turn, decreases the amount of resources available
for export activities.
Economic conditions within the United States provide another
indirect disincentive to export growth.
The level of productivity
in this country has been lower than every other industrialized
country except for Great Britain for the past decade.
This
has raised production costs and made U.S. products less attractive to foreign buyers.
Also, the low level of savings and
investments in the United States has affected the financing
available for exporters.
Financial institutions have been
reluctant to issue loans to exporters, because they do not have
a large amount of excess capital.
Financing terms are higher as
a result, and are not competitive when compared to terlns offered
by other countries.
The incentives that are presently offered to U.S. exporters
are the financing programs that have
report.
been described in this
These incentives are not always effective, but at
least they are an attempt to improve the exporting conditions
in the United States.
-40X.
SUMMARY
In identifying the major financial assistance programs
available to U.S. exporters, several problems associated with
these programs have evolved.
These problems will need to be
addressed in the near future if the expansion of world trade is
going to continue.
First, increased publicity is needed for
these programs to gain national acceptance and feedback for
modifications and additions.
Secondly, the government must be
more cooperative in developing credit terms and more programs
for loans, guarantees and insurance.
Thirdly, the IMF has to
take a more active position is facilitating international trade.
The Fund is currently in financial difficulties, and by helping
countries find investors, the IMF may improve its own liquidity.
A fourth problem involves small businesses in the United States.
These companies need to have more opportunities to learn about
exporting, and they also need additional programs designed
especially for them.
The fifth problem worth noting is the
current level of savings and investing in financial institutions.
These need to be stimulated to provide commercial banks with more
funds available for lending to companies.
Finally, ruld perhaps
most importantly, the Federal Government must develop a comprehensive, solid foreign policy to replace the confusing and
conflicting regulations that presently govern international
trade.
The country cannot continue to be strong in economic or
political terms if it enactsfegiSlation that stifles trade and
expansion abroad.
On a corporate level, it is important for businesses to
seriously consider exporting and expanding trade opportunities
-41in foreign countries.
The countries of the world are becoming
increasingly interdependent, and it would be an error not to at
least investigate exporting and world trade.
The organizations
that have been described primarily offer financial assistance
to exporters, but advisory services are also available.
These
organizations are dedicated to improving the status of exporting
and world trade in the United States.
State and Federal offices
of the Chamber of Commerce are also organizations that may be
contacted for advice and counseling, and independent, smaller
groups also provide information that may get a company to
begin exporting operations.
-42XI.
FOOTNOTES
lEximBank--Export Financing For:
Buyers; Banks., p. 2.
2Lees , Francis.
American Exporters; Overseas
International Banking and Finance. p. 223.
3EximBank--Export Financing For:
Buyers; Banks., p. 8.
American Exporters; Overseas
4 Ibid ., p. 9.
5Your Competitive Edge. p. 3.
6 Ibid •
7A Guide to Financing Exports. p. 8.
80verseas Private Investment Corporation. p. 1.
10International Investment:
Companies. p. 3.
A guide for Executives of Smaller
110verseas Private Investment Corporation. p. 12.
12 Ibid ., p. 2.
13 Ibid •
14 Yeager, Leland B.
International Monetary Relations. pp. 347-348.
15Jonnard, Claude M.
p. 188.
Exporter's Financial and Marketing Handbook.
16 "The Lever Plan," The Economist. p. 15
17 Ibid., p. 16.
18 Jonnard, Claude M.
p. 161.
19Brown , Paul B.
Exporter's Financial and Marketing Handbook.
"Slipped DISC," Forbes. p. 158.
-4)20Jonnard, Claude M.
p. 162.
21Brown , Paul B.
Exporter's Financial and Marketing Handbook.
"Slipped DISC," Forbes.
p. 158.
22The Impact of Regulations on U.S. Exports. p. 8.
2)Ibid., p. 10.
-44XII.
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